The Effect of Exchange Rate Returns on Stock Returns in Various Percentiles of the Distribution: Quantile Regression Approach

The effective role of the stock market in economic growth and development can't be ignored. This market can improve economic production and investment through supplying resources and savings. Interactions between financial markets, including interaction of capital market and the foreign exchange market are being considered more than ever through the expansion of financial markets as well as the establishment of dynamic relations between markets by researchers. In this research, interactions between the Iranian stock market and foreign exchange market have been analyzed as well as  in respect of the existence of outlier data in financial series, the Quantile regression approach has been used to analyze these interactions. The robustness is considered as one of the characteristics of Quantile regression approach which means that the estimated results are not sensitive to outlier observations as well as the violation of model assumptions in relation to the dependent variable data. Linkage between the foreign exchange market and the stock market are different in various deciles of stock return through using daily data (five days a week during 2008-2018 decade. In middle and lower deciles of stock returns, there is no significant relationship between these two markets while in high deciles (in the prosperity condition of stock market), deep and meaningful relationships are seen between them.